TMI Blog2018 (2) TMI 741X X X X Extracts X X X X X X X X Extracts X X X X ..... devoid of jurisdiction.- Decided in favour of assessee. - ITA No.964/Kol/2017 - - - Dated:- 7-2-2018 - Shri N.V.Vasudevan, Judicial Member And Shri Waseem Ahmed, Accountant Member For The Appellant : Shri S.M. Surana, Advocate For The Respondent : Md. Usman, CIT-DR ORDER PER Waseem Ahmed, Accountant Member:- The assessee has filed this appeal disputing the order of Pr. Commissioner of Income Tax-2, Kolkata passed u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as the Act ) dated 14.03.2017 by which Ld. Pr. CIT set aside the assessment order dated 31.12.2014 passed u/s 143(3) of the Act with a direction re-do the assessment in respect of issue mentioned therein pertaining to assessment year 2012-13. Shri S.M. Surana, Ld. Advocate appeared on behalf of assessee and Md. Usman, Ld. Departmental Representative appeared on behalf of Revenue. 2. The assessee has raised the following grounds of appeal:- 1. For that the order of the Ld. Pr. CIT is arbitrary, illegal and bad in law. 2. For that the Ld. Pr. CIT erred in exercising the jurisdiction u/s. 263 when the order passed by the AO u/s 143(3) wherein the interest income was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 800 only. Subsequently, Ld. Pr. CIT observed that assessee has shown interest income of ₹3,09,81,406/- only and tax on such interest income was computed after applying the provision of Rule 8 of Income Tax Rules, 1962 by treating the same as composite income from agricultural operation. As per the Ld. Pr CIT the impugned interest income has no connection with the agricultural operation of the assessee. Therefore, Rule 8 of the IT Rules cannot be applied. Thus, the Ld. Pr. CIT was of the view that the order passed by AO is erroneous in so far as prejudicial to the interest of revenue as the interest income brought to tax as per the provision of Rule 8 of IT Rules. On being confronted for the above stated issue, the assessee submitted that no part of interest income can be treated as independent income and the interest receive should be telescoped with the interest paid. However Ld. Pr. CIT disregarded the contention of assessee by observing as under:- argument of the assessee regarding interest income is not acceptable. As mentioned earlier, sum of ₹ 3,09,81,406 is credited in P/L account which cannot come under purview of composite income for the purpose of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law. Ld. AR also placed the copy of the AO order pertaining to the Assessment Year 2014-15 which is placed on record. On the other hand, Ld. DR submitted that there is no whisper in the order of AO suggesting that impugned interest income is directly linked with the operation of agricultural operation of assessee. Thus there was no application of mind of the AO during assessment proceedings on the impugned issue of interest. The amount of interest expenses is very high exceeding ₹10 crores but the order of AO is silent on the issue. Ld. DR further stated that AO has not established any nexus between interest income vis- -vis interest expenses as claimed by the assessee in its return of income. In the above proposition, Ld. DR submitted that the issue of interest receive need to be further examined by the AO in the light of above observation of Pr. CIT u/s. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as at the end of the assessment year in question and more than 53 crores as at the beginning of the year. It may also be noted that there was no net interest income since interest paid on the cash credit as per balance sheet was over ₹ 10 crores which included over ₹ 5 crores against the cash credit account. Therefore no part of the interest received can be treated as independent income but interest received should be telescoped with the interest paid. In fact it was the requirement of the bank to maintain particular amount of fixed deposit as per the terms of cash9 credit account. In fact this issue was also raised by the AO when required documents were produced in this connection it is further submitted that in view of the following judgements interest on fixed deposited cannot be separately taken as income from other sources when the assessee is enjoying the cash credit facility against the same FD and FD was also made from the cash credit account. Reference in this connection is invited to the decision of ITAT in the case of Somnath Roy Choudhury in ITA No. 615/K/2013 dated 20.1.2016 vide para 5(1) of the said order. From the above, we observe that ld. Pr. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 41. We hold that, in the facts and circumstances of the case, the Assessing Officers were right in treating the interest income earned by the assessee by investing surplus fund of the business in short-term deposits as business income and rightly applied the tests as provided in sub-rule (1) of rule 8 of the said Rules while making the assessments in relation to the income of the assessee. 6.2 We also find support and guidance from the judgment of Hon'ble jurisdictional High Court in the case of Warren Tea Ltd. vs. CIT Anr. reported (2015) 374 ITR 6 (Cal), wherein the Hon'ble jurisdictional High Court has held:- The funds may not always be necessary or may not always be blocked. Therefore, the funds which were surplus at any point of time were fruitfully invested in short-term fixed deposits and the assessee thus earned interest which in a way has reduced its burden on account of interest as would appear from the two figures indicated above. It is, therefore, not possible to hold that the interest earned was not a business income. When the assessee has paid interest of nearly ₹ 2.66 crores and has earned interest of nearly ₹ 1.88 crores, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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